Companies often find themselves in a state of transition, whether due to strategic planning or unforeseen circumstances. One such transitional state is that of a dormant company.
In this guide for small businesses in England, we will explore the ins and outs of dormant companies, covering key aspects such as what they are, how to make a company dormant and how much it might cost you.
What is a dormant company?
A dormant company is a legal status assigned to a registered limited company that has no significant accounting transactions during a given financial year. In simpler terms, it's a business entity that exists on paper, but remains inactive in terms of trading or operational activities.
This status is particularly relevant for small businesses that may experience periods of inactivity or hiatus. Knowing when and how to make a company dormant can be a strategic move, offering flexibility to business owners while maintaining legal compliance. It can be an advantage to keep a company ‘open’ to trade again in future, and keep the company name, whilst winding down any activity if business is slow, or your priorities have changed.
How to make a company dormant
Making a dormant company is a straightforward process. Here's a step-by-step guide:
1. Assess eligibility
Ensure that your company meets the criteria for dormancy. Typically, this means having no significant financial transactions. If your business has been active, consider completing any outstanding transactions or, if applicable, dissolve any assets.
2. Inform Companies House
To officially make your company dormant, you must notify Companies House. Companies House is the registrar of companies in England, Wales, Scotland and Northern Ireland. This involves registering a dormant company account and informing Companies House of your company's inactive status. There are also fees to be paid to Companies House.
3. Update HMRC
Inform HMRC (Her Majesty's Revenue and Customs) of your company's dormant status. This ensures that your company meets all tax obligations and helps prevent unnecessary penalties.
4. Bank accounts
If your dormant company has a bank account, inform the bank of the change in status. Some banks may offer specific services or accounts tailored for dormant businesses, so inquire about any adjustments that need to be made.
5. Maintain compliance
While dormant, your company is still required to keep filing annual accounts and returns with Companies House. This includes a confirmation statement confirming key company details. You will still also need to let Companies House know if there is a change in directorship etc. If you have an accountant, you will need to let your accountant know as dormant company accounts will need to be prepared and filed at Companies House.
How much does it cost to make a dormant company?
From a cost perspective, making a company dormant is generally more cost-effective than maintaining an active business. The exact cost can vary based on factors such as professional fees for assistance and any outstanding financial obligations.
1. Companies House fees
Companies House charges a nominal fee for processing the dormant company status. As of December 2023, the standard fee is £10 for online filing.
2. Professional assistance
While it's possible to handle the process independently, some businesses may seek professional assistance, especially if they have complex financial structures. The cost for legal or accounting services can vary, so it's advisable to obtain quotes beforehand.
3. Bank account adjustments
If your business has a bank account, inquire about any potential fees or adjustments related to changing your company's status.
How do I file dormant company accounts?
Filing dormant company accounts is a crucial step in maintaining legal compliance. Here's a guide on how to complete this process efficiently:
1. Prepare financial statements
Even though your company is dormant, you are still required to prepare financial statements. These should include a balance sheet, and notes, outlining the company's financial position. If you have an accountant, your accountant can assist you with this process.
2. File with Companies House
Submit the dormant company accounts to Companies House along with the necessary forms. This typically involves the completion of form AA02.
3. Submit on time
Ensure timely submission to avoid penalties. Dormant company accounts are usually due nine months after the financial year-end.
4. File a confirmation statement
Alongside dormant company accounts, file an annual confirmation statement with Companies House. This is a snapshot of your company's key details.
What else do I need to know?
Making a company dormant involves more than just filing paperwork. Here are additional considerations:
1. Legal obligations
While dormant, your company is not exempt from certain legal obligations. These include maintaining registered office details and keeping company and accounting records up to date.
2. Reactivating your company
Your company can remain dormant, but if your business becomes active again, you must inform Companies House and HMRC promptly. Failure to do so may result in penalties.
3. Asset dissolution
If your dormant company holds any assets, consider the implications of dissolving or transferring them before or during the dormant period.
4. Bank accounts and contracts
Review and potentially close any bank accounts or contracts that are no longer necessary during the dormant period.
Get legal assistance from LawBite
Making a company dormant is a strategic move that can offer flexibility and cost savings for small businesses in the UK. Understanding the process, costs involved, and ongoing obligations is crucial for a seamless transition.
By following the steps outlined in this guide and staying informed about the legal requirements, small businesses can leverage the benefits of dormancy while positioning themselves for future success.